It has been more than a century since Ambedkar’s second disquisition in the discipline of economics was published; The problem of the rupee: its origin and its solution was published in the year 1923. Ambedkar was awarded a Doctor of Science (D. Sc) upon completion of the aforementioned dissertation from the London School of Economics. Later, during the same year, it was published as a book (Jadhav 2015, p. 39).
This essay is fundamentally a tribute to The problem of the rupee; it aims to serve as a primer by discussing the theoretical gravitas and intellectual depth that Ambedkar’s second disquisition entails. While it is well-recognized that Ambedkar was trained in economics—holding two doctoral degrees[1]—and made significant contributions to law and politics, this essay sheds light upon a few interactions with different economists and economic conditions that Ambedkar’sThe problem of the rupee engages with and subsequently invites for more extensive and nuanced engagement with the monograph.
Earlier, there have been multiple scholarly contributions that engaged with The problem of the rupee. However, they present only the overarching arguments i.e., the arguments are void of the details that explain the intellectual brilliance that is present in Ambedkar (1923). For instance, Jadhav claims that, after evaluating the Indian monetary system and operations, Ambedkar was in favour of a gold-standard rather than a gold-exchange standard (1991, p. 980). In a rudimentary sense, what gold standard and a gold-exchange standard mean is that the former indicates a monetary practice where gold is the direct form of currency that would be available for circulation. On the other hand, the latter i.e., the gold exchange standard is a condition where gold would not be a medium of exchange, but another form of currency would be the medium of exchange as gold would be held for reserve exchanges.
“What is wanted to maintain the value of currency, or of any other thing for the matter of that, is an effective limit on its supply. Convertibility is useful, not because it directly maintains the value of a currency, which is nonsense, but because it has the effect of putting a limit on the supply of currency. But convertibility is not the only way of achieving that object.” (TPR, p. 499)[2]
Jadhav misses out the ideal position of Ambedkar i.e., it is not the gold-standard, but a uniform currency regime that Ambedkar favoured; and this is the position in the dissertation. Likewise, this essay, as mentioned earlier, intends to provide details that were not presented in any scholarly material, heretofore. It would include details of various thinkers that Ambedkar’s dissertation engaged with, nature of the writing and a few notes that deserve to be noticed to explain the intellectual rigour present in the dissertation.
Before delving deeper, it is important to understand that The problem of the rupee is written in the form of a historical survey. Indeed, it was a deliberate attempt by Ambedkar to make it that way. Nonetheless, previous popular engagements, such as Ambirajan (1999) and Narendra Jadhav (1991)do not shed any light on that. The primary motivation of the dissertation was to engage with the historical discussion and debates that led to the Indian currency reform in 1893. The year 1893 marks the beginning of the colonial government’s reforms and efforts to manage the gold standard. It also marks the year of revision of the Indian Coinage Act, 1870. It was the only Act that was concerned with the currency management of the Indian subcontinent under British rule (Simha, 1970). Therefore, Ambedkar makes it a point to present the most ignored parts of the Indian currency system from 1800-1893 in the form of a historical survey.
It is only in Nancharaiah (2007) that the relevance aspect of The problem of the rupee was conveyed. In the context of analysing the economic reforms of India with respect to the liberalisation of international trade during the early 1990’s, Nancharaiah visits Ambedkar’s The problem of the rupee and explains that gains via export trade was not necessarily beneficial for the economy in totality, but it just remains beneficial to certain classes in the system.
In regard to preferring gold-standard over gold-exchange standard, Ambedkar sheds light on the idea of exchange rate as well. He believed that a lower exchange rate[3] meant a higher export trade, but also an increased price-level, simultaneously. Therefore, the onus of lower exchange rate would fall on the working class because of an increase in the price-level (ibid., p. 55).
As far as the intellectual rigour is concerned, Edwin Cannan, Ambedkar’s doctoral supervisor, much appreciated the form of writing that is present in The problem of the rupee. However, while Cannan was not in any favour of any argument/position, he appreciated the nature of the argumentation that was present in the dissertation.
“I do not share Mr. Ambedkar’s hostility to the system, nor accept most of his arguments against it and its advocates. But he hits some nails very squarely on the head, and even when I have thought him quite wrong, I have found a stimulating freshness in his views and reasons.” (TPR, p. 31)
It is not just Cannan that Ambedkar interacted with, intellectually; there were other popular figures who were referred throughout the dissertation. However, this piece engages with only interactions with two of them—John Maynard Keynes (1883-1946) and Edwin Kemmerer (1875-1945).
With Keynes, Ambedkar in his dissertation, disagrees more than he agrees. In fact, Ambedkar demonstrates a serious disagreement with Keynes from the first chapter itself. Firstly, Ambedkar elucidates that, in order to attain a stability in regard to the rupee in the currency system, the general purchasing power ought to be stabilized. In contrast, Keynes held a different opinion i.e., Ambedkar asserts that the stabilization of the rupee’s general purchasing power is the necessary condition for true currency stability. In his view, Keynes overlooks this requirement which is vital to the stability aspect of rupee in the currency system.
“But the conclusions he [Keynes] has arrived at are in sharp conflict with those of mine. Our differences extended to almost every proposition he has advanced in favour of the exchange standard. This difference proceeds from the fundamental fact, which seems to be quite overlooked by Professor Keynes, that nothing will stabilize the rupee unless we stabilize its general purchasing power. That the exchange standard does not do. That standard concerns itself only with symptoms and does not go to the disease: indeed, on my showing, if anything, it aggravates the disease.” (TPR, p. 328)
In total, The problem of the rupee refers to Keynes at 14 different instances. In all of the instances, the agreement between Keynes and Ambedkar is meagre. Perhaps, the disagreement is emanating from the fact that Keynes was a British economist whose vantage point of analysis of the Indian currency system was from a colonial perspective. In other words, the lack of agreement between Ambedkar and Keynes could be also owed to the difference in context, perhaps. On the other hand, Ambedkar demonstrates close affinity and agreement with the American economist Kemmerer.
Kemmerer was a monetary economist with significant influence in the public domain as well. He was instrumental in designing and shaping the Federal Reserve System of the United States of America. Ambedkar’s dissertation refers to Kemmerer and his work in seven different contexts. The agreement between Kemmerer and Ambedkar’s disquisition is vivid. In the context of evaluating the gold standard and the gold exchange standard, the dissertation holds a position that is in alignment with Kemmerer’s views i.e., the inclination towards a gold standard. Nonetheless, there are limitations to the affinity between Ambedkar and Kemmerer, but they are strictly contextual in nature.
The dissertation’s conclusion that gold standard is an efficient system over the gold exchange standard emerges from the fact that Indian prices, on average, were higher than those in countries adhering strictly to the gold standard. This discrepancy undermines the assumption that the exchange standard—a system where currency value is tied to foreign exchange reserves—is as reliable or beneficial as the gold standard. In sum, stability in the rupee’s gold value does not guarantee overall price stability, challenging the idea that the exchange standard matches the gold standard’s efficiency.
As he brings a conversation between Keynes’s and Kemmerer’s views with respect to the different currency regimes, in the fifth chapter, ‘From a Gold Standard to a Gold Exchange Standard’ and in the (seventh and) final chapter ‘A return to the Gold Standard’, Ambedkar argues in favour of a uniform currency regime, but with its own limitation.
“If it is desirable to do away with the management then convertibility is an insufficient measure; for with convertibility the rupee will still remain a managed rupee. … Queer as it may seem, safety lies in an inconvertible rupee with a fixed limit of issue.” (TPR, p. 614)
In essence, Ambedkar’s second disquisition i.e., The problem of the rupee could be considered as an entry point into understanding the evolution of different currency regimes that prevailed during the colonial time period. The intellectual engagement is undoubtedly rigorous; however, only two interactions, with Keynes and Kemmerer, are provided in this essay, but the writing contains tables and documents that are concerned with the Colonial Indian currency systems in abundance.
For instance, the dissertation documents various forms of currency that were in circulation under different provincial rules. The dissertation refers to Useful Tables (1840) by James Prinsep; the treatise deals with coins, weights and measures of British India. Therefore, Ambedkar’s The problem of the rupee is not just a concern for the historians of Indian economics, but also economic historians, historians of colonial India and scholars with a particular interest in different currency regimes as well.
Footnotes
[1] His first disquisition i.e., The evolution of provincial finance in British India was published as a book in 1925 but it was accepted at Columbia University as a dissertation in 1917; Ambedkar was at Columbia University from 1913 to 1917 and at LSE from 1920 to 1923 (Jadhav 1991, p. 24, p. 39).
[2] The citation scheme ‘TPR’ is the abbreviation for The problem of the rupee: its origin and its solution and it is followed by the page number. The version of this primary text (TPR)that was consulted for this essay was compiled by the Education Department of the Government of Maharashtra—Dr. Babasaheb Ambedkar: Writings and Speeches (1989). The problem of the rupee is present in volume 6 of the compilation.
[3] In Ambedkar, exchange rate is defined as the number of units of pound-sterling that is required to obtain a single unit of Indian currency.
References
Ambedkar, B. R. (1989) [1923]. The problem of the rupee: its origin and its solution, as republished in volume six, Dr. Babasaheb Ambedkar: Writings and Speeches, compiled by Vasant Moon, Bombay: Education Department, Government of Maharashtra, pp. 315-618.
Ambirajan, S. (1999). Ambedkar’s Contributions to Indian Economics. Economic and Political Weekly, 34(46/47), pp. 3280-3285.
Chikoti, S. S. H. (2021). Ambedkar’s Economics: Correspondence with the Austrian School of Economic Thought? Unpublished BA Honours Thesis. Bengaluru: Azim Premji University.
Jadhav, N. (1991). Neglected Economic Thought of Babasaheb Ambedkar. Economic and Political Weekly, 26(15), 980-982.
Jadhav, N. (2015). Ambedkar An Economist Extraordinaire. Konark Publishers.
Nancharaiah, G. (2007). On Exchange Rate, Trade Balance and Distribution. In S. Thorat & Aryama (Eds.), Ambedkar in Retrospect: Essays on Economics, Politics and Society (pp. 49–57). Rawat.
Simha, S. L. N. (1970). Currency, Exchange and Banking Prior to 1935. History of the Reserve Bank of India 1935–51. Mumbai: Reserve Bank of India.
Prinsep, James. (1840). Useful Tables, Forming an Appendix to the Journal of the Asiatic Society: Part the First, Coins, Weights, and Measures of British India. Bishop’s College Press.
Sai Srihari Chikoti (Srihari) has an MA in Economics from Azim Premji University, Bengaluru. His primary research interest is in the history of economic thought with a specific focus on Indian economics and macroeconomics. He is a founding member of the Indian Society for the History of Economic Thought (ISHET). He tweets at @SrihariChikoti.
Acknowledgements
I am deeply grateful to Alex M. Thomas for his guidance and continuous encouragement throughout the development of this essay. I would also like to sincerely thank Ashwath R, Dontha Prashanth and Thair Ahmad for their valuable comments and feedback.
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